Category Archives: Micro

The Famine in Horn of Africa and Political Economy Failure

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The study of economics starts with recognition of the economic problem: we (humanity) have unlimited wants but limited resources to satisfy those wants, so something has to give. Famine is perhaps the starkest reminder of the economic problem. People die simply because they cannot get enough food to eat.  Yet while there have been famines throughout history, famines today are different.  The reason is because the problem with modern day famines isn’t the stark reality of the physics of too many people, not enough food grown.  Instead there’s no natural reason for famine today with the increases in productivity of agriculture and food preservation in the 20th century.  We (the planet) now grow enough food to feed everybody.  Today when there’s famine, it’s a failure of political economy.

Today we are seeing a major famine in the Horn of Africa, in Somalia, parts of Ethiopia, and Eritrea. The famine threatens the lives of millions of people. It is a human tragedy on a massive scale.  Yet it was avoidable as Maude Barlow, National Chair of the Council of Canadians, writes (bold emphasis is mine):

Most Westerners see the crisis in the Horn of Africa as a combination of a large population, chronic poverty, corruption on the part of African government officials, failed states and no rain, and that none of this will ever change so giving money to this self perpetuating crisis is throwing it away. But I offered another narrative that I believe is closer to the truth.

I believe the water and food crises in the Horn of Africa are the direct result of old-fashioned colonial exploitation: land grabs by foreign hedge and investment funds and wealthy countries setting up large foreign-based agribusinesses that are guzzling the lion’s share of the water resources and using them to grow crops and biofuels for export and drive up speculation. Ethiopia, for instance, has already leasedseven million acres of land at $1 an acre for 100 years and has put another seven million on the market. Lake Naivasha in Kenya (where the movie Out of Africa was filmed) provides most of the cut flowers (88 million tons every year) for Europe. As a result, the local Masai population has no access to its traditional water source, and the lake, like hundreds of others in the region, is dying.

Foreign acquisitions are forcing small farmers and peasants off the land depriving them of access to food and water. The food and water of the region is being used for export for profit and not being used for local people. As a result, food prices in the region have gone up 200 per cent in less than a year and the price of water has risen 300 per cent. The foreign minister of Ethiopia defends his government’s actions with the neo-liberal explanation that these foreign “investments” will make the country wealthy enough that it can stop producing food and start buying it on the world market. But exactly the opposite is happening when you drain the land of its water, as is being done by this agribusiness industry, and the rains stop coming. The drought is directly related to both climate change and the resulting desertification of a land stripped of its water sources.

In my remarks, I pointed out that there is enough food and water for all in that region, (as there is for every region on earth) if they moved to a set of policies based on respect for the land, water and people, instead of the greed and raw power of global food interests increasingly entrenched in global and regional trade agreements.

Here is what is essential to know: deserts can arise because humans treat land and water badly. Desertification is taking place in over 100 countries in the world, as we strip the land of land-based water from aquifers and rivers, sending it to thirsty mega-cities (who dump it untreated into oceans), or using it to grow food and other goods for the world market, where it is transported out of local watersheds in the form of “virtual water exports.”

Water-retentive landscapes, conservation, watershed restoration, rainwater harvesting, small, local and sustainable farming, poverty reduction, and the human right to food and water: these are the guideposts to a sustainable, just and full recovery for the Horn of Africa.

Not Retiring Is the New Retirement Plan For Many

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CalculatedRiskBlog tells us about a new major study of American workers and their retirement plans.  The study is published by the Transamerica Center for Retirement Studies [note for students: the center is an excellent source of research data and analysis].  CalculatedRisks summarizes:

From Rachel Ensign at the WSJ: For Many Seniors, There May Be No Retirement

Already battered nest eggs took another beating this month with the market’s wild swings. With interest rates essentially at zero since 2008, income from Treasurys and certificates of deposit is pretty paltry. … On top of that, housing prices [leave] homeowners with much less equity to tap.

Here is the survey mentioned in the article: The New Retirement: Working

• The survey found that for many Americans, the foundation of their retirement strategy is simply not to retire, to work considerably longer than the traditionalretirement age, or work in retirement:
–39 percent of workers plan to work past age 70 or do not plan to retire
–54 percent of workers expect to plan to continue working when they retire
–40 percent now expect to work longer and retire at an older age since the recession

• Workers’ greatest fears about retirement include “outliving my savings and investments” and “not being able to meet the financial needs of my family.”

• Most workers will continue working out of financial necessity:
–Workers estimate their retirement savings needs at $600,000 (median), but in comparison, fewer than one-third (30 percent) have currently saved more than $100,000 in all household retirement accounts
–Most workers, regardless of age or household income, agree that they could work until age 65 and still not have enough money saved to meet their retirement needs
–Of those who plan on working past the traditional retirement age of 65, the most commonly cited reasons are of need versus choice
–Many workers (31 percent) anticipate that they will need to provide financial support to family members

When I looked at the report myself, I was struck by this line in the executive summary:

Workers’ greatest fears about retirement include “outliving my savings and investments” and “not being able to meet the financial needs of my family.”

This is related to the point I’ve tried to make in the past (and also here  and here):  Social Security is not a pension plan. Social Security is an insurance program that insures all of us against the possibility of “outliving our savings and investments”.  It is particularly disturbing to hear politicians and those least likely to outlive their investments be in such a hurry to cut Social Security (or Medicare) at a time when uncertainty about investments and savings is rising (just look at the uncertain stock market and housing markets)!

President Obama’s Jobs Advisor Ships Jobs Overseas.

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No wonder jobs aren’t being created.  The President listens closely to Jeffrey Immelt, the CEO of corporate welfare recipient large multinational General Electric about jobs policy.  So what’s GE doing about jobs?  Bloomberg reports:

General Electric Co.’s health-care unit, the world’s biggest maker of medical-imaging machines, is moving the headquarters of its 115-year-old X-ray business to Beijing to tap growth in China.

“A handful” of top managers will move to the Chinese capital and there won’t be any job cuts, Anne LeGrand, vice president and general manager of X-ray for GE Healthcare, said in an interview. The headquarters will move from Waukesha, Wisconsin, amid a broader parent-company plan to invest about $2 billion across China, including opening six “customer innovation” and development centers.

The move follows the introduction earlier this year of GE Healthcare’s “Spring Wind” initiative to develop and distribute medical products and services in China, GE said in a statement today. More than 20 percent of the X-ray unit’s new products will be developed in China, LeGrand said.

Read more: http://www.bloomberg.com/news/2011-07-25/ge-healthcare-moves-x-ray-base-to-china-no-job-cuts-planned.html#ixzz1UjwUi6Yu

Fracking Can Contaminate Drinking Water

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We should have learned from decades of lying by tobacco companies, but we don’t.  Oil and gas companies have been lying about the “safety” of hydraulic fracturing, “fracking”, of oil and gas wells.  From the The New York Times:

“There have been over a million wells hydraulically fractured in the history of the industry, and there is not one, not one, reported case of a freshwater aquifer having ever been contaminated from hydraulic fracturing. Not one,” Rex W. Tillerson, the chief executive of ExxonMobil, said last year at a Congressional hearing on drilling.

It is a refrain that not only drilling proponents, but also state and federal lawmakers, even past and present Environmental Protection Agency directors, have repeated often.

But there is in fact a documented case, and the E.P.A. report that discussed it suggests there may be more. Researchers, however, were unable to investigate many suspected cases because their details were sealed from the public when energy companies settled lawsuits with landowners.

Current and former E.P.A. officials say this practice continues to prevent them from fully assessing the risks of certain types of gas drilling.

“I still don’t understand why industry should be allowed to hide problems when public safety is at stake,” said Carla Greathouse, the author of the E.P.A. report that documents a case of drinking water contamination from fracking. “If it’s so safe, let the public review all the cases.”

This is another example of how very large corporations, with very deep pockets, can use lawyers, lawsuits, the courts and regulators to their advantage and our disadvantage.

One Reason U.S. Healthcare is So Expensive – Too Many Insurance Companies

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A single-payor system of healthcare insurance such as Canada uses has tremendous efficiency advantages.  Contrary to how many U.S. politicians and media types describe it, Canada does not have a government-run healthcare system.  What Canada has is a government-run and government-funded healthcare insurance system.  Doctors and hospitals still compete with each other.  They still operate and manage their own practices and businesses just like in the U.S.  What they don’t do is employ large numbers of people just to shuffle paper and fill out myriad different forms for myriad different sets of rules by insurers.  They have a single system. It works.

How well does the system work?  Well a study published in Health Affairs reports that the average Canadian doctor spends nearly $61,000 less on administrative paperwork than their American counterparts.  That’s a savings of over $27 billion.  Sometimes the free market comes with a very hefty bureaucratic surcharge.  From the study announcement:

 U.S. physicians spend nearly $61,000 more than their Canadian counterparts each year on administrative expenses related to health insurance, according to a new study by researchers at Cornell University and the University of Toronto.

The study, published in the August issue of the journal Health Affairs, found that per-physician costs in the U.S. averaged $82,975 annually, while Ontario-based physicians averaged $22,205 – primarily because Canada’s single-payer health care system is simpler.

Canadian physicians follow a single set of rules, but U.S. doctors grapple with different sets of regulations, procedures and forms mandated by each health insurance plan or payer. The bureaucratic burden falls heavily on U.S. nurses and medical practice staff, who spend 20.6 hours per physician per week on administrative duties; their Canadian counterparts spend only 2.5 hours.

“The magnitude of that difference is what is interesting,” said co-author Sean Nicholson, Cornell professor of policy analysis and management in the College of Human Ecology. “It’s the nurse time and the clerical time, rather than physician time, that’s different. That’s driving the increased costs.”

The authors offer ideas U.S. policymakers and health insurers could use to streamline inefficiencies and reduce administrative costs. Chief among them: standardize transactions and conduct them electronically. Physical mail, faxes and telephone calls can slow practices down, according to Nicholson. The result is an additional $27 billion spent every year in the U.S. when compared to the costs incurred by physicians in Canada

Hat tip to Brad Delong for finding this.

Republicans: What Deficit? We Need to Stop Unions First.

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Michael Perelman reports with NPR’s help about how the Republicans shut down the FAA in mid-July for nearly 4 weeks as a favor to Delta Airlines.  Basically, in July the law authorizing the FAA, the agency that supervises airport and airline safety,including flight controllers, expired.  Normally this would be a routine renewal effort.  Even in somewhat testy times with a split Congress, there would normally be an agreement on a stop-gap measure.  Not this year and not with this House.

The FAA was shut down because of a partisan dispute.  The basic issue was supposed to be the Republican demand that the agency save $16 million by ceasing to subsidize 13 airports with relatively little demand.  Yes, the airports were in Democratic strongholds.

NPR’s Brian Naylor reported that the airports were a bargaining chip.  The real issue was the threat that union power posed for Delta.  The National Mediation Board rejected a practice that counted required a union to win more than half the eligible votes rather than half of the votes cast.

Delta, the only non-union airline, got the Republican bill to include language overturning the National Mediation Board decision.  Since the House leadership refused to budge, the FAA shut down, leaving the government unable to collect $30 million per day in taxes.  Patriotically, most of the airlines continued to collect the tax in the form of higher fares.  However, these “job creators” kept the money so that they could help the economy.  Besides, the government could make up the lost taxes with still more tax cuts.

This happened two weeks before the supposed debt-ceiling deadline.  At the time, the Republicans were claiming that the deficit and government spending were out of control, threatened the nation, and had to be reduced.  So what did they do?  Rather than compromise, they decided to stop the government from collecting $30 million in ticket taxes per day!  In addition they put 4,000 government workers out of  a job!  What was worth costing the government so much money and making the deficit so much worse?  They wanted to save $16 million per year by closing 13 airports in Democratic districts.  Oh, and they also wanted to change the rules on unionization to protect big-donor Delta Airlines.  Best government money can buy.

 

Solar Power Looking Brighter Economically

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John Quiggin of Crooked Timber sends us to Grist.org for “Solar Gets Cheap Fast” for good news about solar power.  The cost of producing solar photovoltaic cells (the silicon-based cells that convert sunlight to electricity) has been declining consistently at 20% per year since the early 1980′s.  Solar power is now close to the point where it is cost-competitive with fossil-fuel (coal, natural gas) and nuclear.  When we consider that any new coal-fired power plants will take 5 years or more to build (nuke even longer), then solar is now in the competitive horizon.  This is great news.

It really shouldn’t be news though.  We should have expected it.  Anytime a new product/technology goes into production, per-unit costs generally decline.  And, they generally decline at a predictable rate.  Two micro-economic phenomena combine to produce this predictable declining cost curve.  The first is often described in principles textbooks (although often over-stated):  economies of scale.  As production volumes get larger, often (not always) per unit costs decline because cheaper production technologies become feasible – it’s the phenomenon of mass production.  But another curve is involved.  It’s called an experience curve. Basically an experience curve summarizes how, even with using the same scale technology, as producers get more cumulative experience with producing the item, they produce it more efficiently.  In plain talk it’s called learning-by-doing.  It’s a staple of many business strategies, particularly in electronics.  While the specific improvements aren’t foreseeable ahead of time, the fact that costs will decline is predictable.  In other words, it’s predictable that we will learn.

Socially and economically, the arrival of wide-scale solar electricity generation is a good thing.  Solar electricity generation doesn’t create green house gases or other pollutants. It can be more effectively decentralized, relying less on huge power plants. The systems involved aren’t dependent on the kind of complex safety systems that make nuke power and coal dangerous. It doesn’t require a huge distribution and logistics network to mine/drill and transport a scarce natural resource like coal or gas.  And, solar installations can do double duty.  Unlike growing plants for bio-fuel or strip mining for coal, solar can be generated on top of existing buildings.   Critics often claim that solar is unreliable because “the sun doesn’t always shine”.  But solar system fit well with the demand for electricity.  Demand for electricity peaks in summer when the sun shines the most (think air conditioning). So the condition that creates peak demand for electricity is exactly the condition that generates solar power.  Further, newer solar systems are increasingly capable of generating electricity (albeit not as much) from just daylight even when bright sunlight is not present (does your solar-powered calculator stop indoors?).  Personally I’d rather trust the sun to rise each  day and provide daylight than to trust that engineers have perfect control of the safety of an inherently dangerous and polluting power plant (Fukushima anyone?).

The arrival of cost-effective solar power is also an object lesson in why government subsidies are often justified for new technologies.  Often, when new technologies are invented, the costs (“business case”) are too high to be practical or competitive with existing alternatives, despite the conceptual attractiveness.  We have a “new technology chicken-and-egg”.  Private investors and private firms won’t touch the new technology because it will take too long for costs to decline to a point where they can make the kind of high returns they want.  It’s too risky for them and too-long range.  Private investors and corporations really don’t think very long term.  But, until somebody actually begins producing the item we don’t gain the benefits of economies of scale or learning experience.  It’s at times like this that governments can play a great role.  Governments, by borrowing at the lowest interest rates, can take the long-run view.  They can invest because the benefits will be social and benefit the larger economy later.  Governments have, in fact, been key to creating new technologies and economic growth throughout the last several hundred years.  The telegraph, the telephone, electrical generation/distribution, canals, railroads, improved ocean navigation, computers, networks (including the Internet and World Wide Web that brings you this story), automobiles, aircraft and airlines — all these were dependent upon government early on and would not have happened had it not been for government.

That’s not to say government should always own, operate, and scale up the businesses that do it.  There’s a variety of mechanisms for government to seed and feed new technologies.  But that’s a different discussion.

Corporate Entitlements: Music Edition

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Well sorry to all for the two-week absence, but I’m back from being on the road and all the end-of-semester stuff the school requires.

There’s a myth that’s pushed and carefully nurtured by corporate executives and conservatives.  It’s the image that “private enterprise” lives and dies by the market and that the profit motive is a powerful method of harnessing the enormous managerial energy and creativity to society’s benefit.  It’s an extended version of Adam Smith’s “invisible hand” metaphor which is often improperly joined with Smith’s quote about “It is not from the benevolence of the butcher, the brewer or the baker, that we expect our dinner, but from their regard to their own self interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.[4]”  The myth holds that privately-owned businesses, when seeking profits, are acting in the public’s interest.  Of course, the people who push this myth have never read Smith.  Smith did not hold that at all.  Instead they build their case on a simplistic understanding of neo-classical microeconomics.

But one of the problems with neo-classical microeconomics is that it assumes the rules are fixed. The myth assumes that business people don’t try to bend or change the rules to their favor (something Smith recognized back in 1776).  Under the neo-classical myth, businesses only make above average profits when they either produce more efficiently than competitors or create a better product than competitors.  The neo-classical theory we teach in Principles courses has no room for firms that bend the rules to favor themselves and disadvantage competitors.  In the theory, corporations behave like sports teams.  When a new technology or new product propels an upstart competitor to become dominant (“win in the market”), the established large firms simply take their lumps and like good sportsmen accept their losses and reduced size.

In the real world, a world that is increasingly oligopolistic, firms don’t behave like good sportsmen.  Instead they bribe the referee.  They cheat. They blame the fans (customers) and get the government to keep them in their former high-profit splendor.  It’s a lot easier and more profitable.  In the real world, being innovative, constantly striving to improve efficiency, or adapting to change is hard work.  Harder work than the executives of large corporations want to do.  It’s much cheaper, easier, and even fun (politicians throw parties!) to manipulate the government.

So what’s this have to do with music?  The music industry has a very long history of using government to manipulate the outcomes, stop competition, and keep them flush with unearned monopolistic profits.  The primary tool is copyright law.  Copyrights, like patents, are nothing more than a government-granted monopoly.  It’s protection from any competition.

The recorded music industry has become a tight oligopoly dominated by four firms.  Unlike the 1950′s and 1960′s when small independent labels could get distribution and grow if they found a “star”, the industry is largely in the hands of the big execs at these four firms.  First with vinyl, then cassettes, and then eventually CD’s,the industry grew fat, rich, and concentrated in the 1970′s through 2000. But technology moves on. People want it in digital form in MP3′s. They want to share it on the Web. But rather than adapting to the new technology, or rather than accepting their fate as a declining industry, the industry has fought back by pushing to change the rules.

The music industry has pushed the interesting concept that recorded music is simultaneously “property” (their “intellectual property”) but that when we buy a copy we aren’t getting any “property” at all.  We only get  a license to use it on one machine and we can’t re-sell it.   The industry has claimed that it’s the victim of theft and file-sharing, although their analyses are weak, flawed and wrong. They have claimed that file-sharing is “destroying” their business.  But it turns out that’s flat wrong too.  From Dwayne Winseck of the Toronto Globe and Mail we get the following (hat tip to Stephen Downes):

 But stop the music. What if this image of a beleaguered music industry is flawed?

In fact, the music business appears to be in peril only if we focus on just one element of the business, the “recorded music” segment. Doing that, however, ignores the three fastest growing segments of the business: concerts, Internet and mobile phones and publishing rights.

Include them and the portrait changes dramatically, as the figure below shows:

The music industry is not in decline. In fact, the “total” music industry has grown from roughly $1.26-billion in 1998 to just over $1.4-billion today. Worldwide, the growth has been even more impressive, especially in the fast-growing economies of Brazil, Russia, India, China and South Africa (the BRICS).

But the reshuffling of new and old elements in the industry has not been kind to the traditional big four global record labels, EMI, Universal, Warner Music and Sony. A few massive concert promoters – Live Nation (Ticketmaster), AEG, etc. – also threaten to usurp their place at the centre of the music universe. Bands such as Radiohead, the Arctic Monkeys and Pearl Jam now go straight to audiences with their music, while picking up whatever slack ensues through concerts.

The graph illustrates very clearly what’s happening.  People (customers) are shifting in their preferences due to changes in technology and lifestyles. People want more digital music on mobile devices and more live music.  The flexible, innovative upstarts are bands like small independents that record and sell their own music by pushing it at live performances. Or it’s established bands like Radiohead, Arctic Monkeys, and Pearl Jam that push the digital music out on the web, often free, in order to increase concert sales and related merchandise.  The total music industry (the orange line) is doing OK, particularly when we consider there was a nasty recession in 2007-09. But the model of recorded music sold by a tight oligopoly of music execs that are paid excessive compensation to tell us what to listen to is dying.  Unfortunately they are responding by pushing for more and more restrictive laws that protect their privilege, their monopoly.  The reality is that most so-called “piracy” is really the result of the recorded music industry failing to respond to genuine market opportunities.

I find it interesting that conservatives like to attack social insurance programs like Social Security and unemployment compensation by claiming they are “entitlements” that people don’t earn. Yet, they never seem to call copyright laws what they are: corporate entitlements.

Gov. Rick Snyder Invokes the Magic Job Genie

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The mantra of Republican governors (and in Congress) has been that taxes must be cut in order to create jobs.  In previous posts I’ve dealt with the confusion about how federal level changes income taxes  might or might not affect the strength of the economy. Most of the federal tax discussion focuses on individual income taxes.  But at the statehouse level, Republican governors have been pounding a theme that claims business tax cuts will drive economic growth in general and job creation in particular.

In Michigan, Republican Governor Rick Snyder has just pushed through a massive restructuring of Michigan taxes.  The old Michigan Business Tax (a complicated scheme applying to all businesses) was repealed.  In it’s place is a new corporations-0nly 6% profits tax. The new tax collects only a small fraction of the revenue the old tax did, so individual tax burdens have been increased, particularly on seniors and low-income folks.  In summary, it is a giant tax shift: lower taxes for businesses and higher taxes for individuals, especially the poor and seniors.

Why?  Jobs, we’re told. The Governor, a self-proclaimed very smart person (“nerd”), keeps telling people that Michigan needs new jobs and the way to create them is to cut business taxes.  Even before the new tax cuts were officially passed, the evidence is starting to come in that the idea doesn’t work, as shown here.  But the governor continues to claim jobs will result if we only cut business taxes.  I’m skeptical, but willing to listen.  After all, he’s a really smart person (his campaign ads keep telling us that, so it must be true, right?)  So I was very excited this morning as I’m driving to work  and listening to Michigan Public Radio  (recording of program as MP3 available here) to hear the Governor would be on the show live.  Maybe he could enlighten me about how this “tax cuts create jobs” stuff works.

The very first question was fantastic.  An alert listener asked (I’m paraphrasing from memory): “Precisely what empirical evidence exists that your business tax cuts will create additional jobs and just how many jobs should we expect?”  Snyder couldn’t give a straight answer.  He immediately responded with “It’s just a matter of basic economics. When a business have more money or resources it can create more jobs” (again paraphrase).

Unfortunately for the people of Michigan, Snyder has it all wrong.  That’s not basic economics.  He’s thinking basic accounting.  Basic economics says businesses will hire more workers when they perceive there’s demand (spending) for their product at profitable prices.  Taxes don’t really enter into it.  That’s not just basic economics theory, it’s also confirmed by repeated surveys of business managers.  Tax rates, particularly state tax rates, are waaaaay down the list of factors important in deciding on hiring and staffing levels.  Snyder should know better.  He himself, when he was CEO of Gateway Computers, moved the company from South Dakota, a low tax state, to California, a very high tax state?  Why would he have done that if taxes were so important?

The moderator, Rick Pluta, to his credit, didn’t bail out Snyder but moving quickly to the next question.  Instead we were treated to the Governor claiming that “it’s not possible to pinpoint exactly how many or which jobs might be created by the tax cuts, but we believe it will happen”.  That’s my point here. There is no evidence. There is no sound theory.  Instead, what we have is a faith-based policy.  We cut taxes for businesses in total and eliminated them completely for thousands of businesses in belief  that jobs will be created.  There’s no real evidence.  There’s just a belief in the magic jobs genie*.  The jobs genie only comes out when taxes are cut.  And when taxes are cut, the genie just magically appears and inspires businesses to go crazy and say “Hey let’s hire people. Let’s create jobs!”

Snyder then proceeded to offer his only empirical evidence. “We have some surveys where many of these small and medium businesses say they would consider creating new jobs in response to this bill”.  The Governor’s a lousy social scientist and economist.  Contrary to Snyder’s claims, it is possible to study and quantify this stuff.  Applied economists have done this stuff for decades. It’s our bread-and-butter.  There are  many studies on the jobs impact of state business tax cuts.  The evidence does not support Snyder’s position.  Indeed, contrary to his claims that they don’t know how many jobs will be created, the state treasurer and budget office must necessarily make estimates of state employment under different tax schemes in order to make budget forecasts.  Snyder is hiding because the evidence doesn’t support what he wants to claim.  He prefers to conjure magic beings like the jobs genie.

Snyder did say that employment is how he should be measured as governor.  What he didn’t say is that the appropriate measure is how much Michigan’s employment grows relative to the national average.  If the U.S. as a whole simply manages to not have a major recession while he’s in office, then Michigan employment will grow.  The U.S. economy as a whole is the dominant influence on Michigan employment, not what the state government does.  But, the policies of the state government have a major influence on whether the state does better or worse than national average.  For the last approx. 15 months, Michigan has performed significantly better than the national norm, albeit Michigan started in the worst condition.  (Nevada has that title now).  The clock is ticking now.  It’s up to Snyder to prove that, contrary to historical evidence and his own prior business decisions, that state business tax cuts will create faster than national average job growth.

* The magic Jobs Genie is only one of a pantheon of magical creatures that animate the economic theories of many politicians these days.  There’s also the Banking Unicorn and the Investment Confidence Fairy and others.  I’ll talk about those in future posts.

Nuclear Power and Externalities

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Externalities are one way in which markets and private enterprise can fail to reach socially desirable outcomes.  An externality exists whenever there’s a third party or parties that are affected by a transaction, yet they have no direct say in the transaction.  Typically we assume that any market transaction involves two parties, a buyer and a seller. Either is free to refuse, negotiate, or accept an offer depending on whether the total package including price is right for them.  If the two parties agree, then there’s a deal. 

But what happens if two parties agree to a deal but the decision to pursue the deal causes harm to others who don’t have the power to say no to the deal? That’s an externality. And it’s one of the justifications for having government regulation or even prohibition of some transactions.  

Supporters of nuclear power like to claim it’s a clean industry and energy source.  By that, they imply there are no externalities.  But that’s not quite true. Nuclear power as traditionally implemented has enormous externalities of two types. First, when something goes wrong, it goes really wrong.  Three-mile Island, Chernobyl, and Fukashima wrong.  All are externalities because the original designers/operators do not suffer the consequences of their mistakes.  Second, nuclear power as traditionally implemented produces enormous radioactive waste that the nuclear power plant operators are not responsible for.  Perhaps thorium is a better way, perhaps not.  We need to be very careful. And we need to remember that whenever possible corporations will attempt to manipulate the regulatory authorities so as to create the maximum externality and minimum responsibility.

In the meantime, it’s worthwhile to review the full extent to which nuclear power and nuclear bomb development has made many places on the planet totally uninhabitable.  Der Speigel magazine has an excellent expose here on the fifteen no-man’s lands created by nuclear power.  It’s worth the read and viewing.  It’s sobering.